Of 'schadenfreude' and destruction

Hidayat Jati, Researcher, Jakarta

Not long after Sept.11, a dreadful event which nonetheless exposed America's vulnerability making it a lot more like the rest of the world, especially its messier part such as our beloved Indonesia, we now see even more and more indications that indeed, we are all alike. Thanks to news surrounding names like Enron, Haliburton, WorldCom, Harken we now know for sure that corporate crooks and incestuous relations between the private and public sectors are universal. We all have feet of clay.

We now seems to have the foundation to permanently destroy the tired pseudo-anthropological adage that says cronyism and poor corporate governance are the exclusive and unique domain of Asia. This is the part of the world, according to this view, that has such exotic things like client-patron relationship such as the "Javanese" way of doing things for example. This is where they also have "guangxi" -- the uniquely Chinese way of doing business partnerships/alliances. These are things that give Javanese bureaucrats and Chinese businesses, almost a natural propensity to engage in corruption and complicated cross-holding company structures, such clichis say.

Of course, such nonsense when viewed closely is practically not that different to the similar hubris that supposedly explains the success of Asian economies pre-1997: A phenomenon of unique culture that permeates through the countries' parliamentary halls as well as corporate board rooms -- remember Japan Inc.? Thanks to U.S. Army Secretary Thomas White and the U.S. Congressional hearings on the Enron case, (now involving Citigroup and JP Morgan Chase), we get it that one does not have to be a Javanese public official or Japanese banker to engage in questionable deals.

This is why we in Indonesia now are hearing buzzing sounds of satisfaction from a wide circle that encompasses leftist NGO activists (who almost never have anything good to say about businesses anyway), heavily indebted Indonesian tycoons, multi- millionaires Indonesian politicians and many business analysts -- including this writer to a degree. We are all humming the sweet tune of schadenfreude (German word that means the feeling of joy in the troubles of others). KKN and lousy markets unite and perhaps condemn us all.

But this tune, although highly entertaining in the short run, is dangerously intoxicating. There are still many things we in Indonesia can learn from the Great Satan of the United States of America. This is about competition and creative destruction. It is too early to write off modern capitalism and democracy, as practiced over there, even with all the bad news coming out from Wall Street and, in a different context, from Attorney General John Aschroft's office.

We should not lose sight on how rapid the reactions have been in the attempt to punish the wrong and fix the big machine of corporate America. Failed companies went bust quickly. Some executives were arrested. Bankers and analysts became subjects of legal investigations. The U.S. Congress has agreed on the details of a tough corporate reform bill. Coca-Cola and Amazon.com announced that they would treat stock-options as expenses, even though such a decision would certainly impact their P&L numbers.

What's the rush? The answer is simple. Both the politicians and corporate bosses' careers depend on it. They are vulnerable to voters, public shareholders and customers.

American companies must compete fiercely with each other to survive and to grow and expand their influence. So do the politicians. Those who can't compete or become obsolete must go. This is the essence of creative destruction, one major pillar supporting both democracy and capitalism -- the worst of all systems "except for any other", as Winston Churchill once said.

This is what we clearly lack. The incentive regime here is warped so that it enables insolvent companies to linger on and company chairman reaping million dollar bonuses despite losses. On the political arena, it also allows the central bank governor to remain in office despite a criminal indictment and members of the House of Representatives keeping their seats even though the areas they technically represent have separated from the republic. The indirect election system and the continued extreme concentration of ownership over corporations have created a serious distortion to accountability.

In some rare cases, the power of competition and choice actually apply to Indonesia. Look at consumer product companies and print media. The industry's leaders constantly launch new products and innovate. Their survival almost entirely depends on their ability to convince their customers to keep on buying their products. Look at PT HM Sampoerna after the launch of their mild cigarettes. Look at Unilever after they use smaller packages. Compare the aggressive Jawa Pos newspaper and the now closed Surabaya Post.

In a sense, this is why until we begin to choose our leaders the way we choose our shampoo or newspapers, Indonesia will remain somewhat static. Politicians and their appointees in the regulating agencies must be subjected to the forces of creative destruction. Let them directly and openly compete for our votes out in the open and away from the kretek smoke-filled rooms around Senayan.

The same could be said about our companies. Reduce or get rid of concentration of ownership in companies. Make them answerable to a great number of stakeholders. Unless things change over here, not long from now somebody else will be humming the sweet tune of schadenfreude with us on their mind.